HARLEYSVILLE GROUP INC

On September 28, 2011, the Mutual Company and HGI entered into an agreement and plan of merger (the Merger Agreement) with Nationwide the Mutual Company Insurance Company (Nationwide) and a subsidiary of Nationwide (Nationals Sub). Pursuant to the Merger Agreement, the Mutual Company will merge into Nationwide with Nationwide as the surviving Company and the policyholders of the Mutual Company will become policyholders and members of Nationwide. In addition, Nationals Sub will merge into HGI with HGI as the surviving company and a wholly-owned subsidiary of Nationwide. As a result of the merger, all outstanding shares of common stock of HGI held by stockholders, other than Nationwide, will be converted into the right to receive $60.00 per share in cash. The Mutual Company has also entered into a voting agreement with Nationwide under which it agreed to vote its 53% interest in HGI in favor of the merger. The Merger Agreement restricts the Mutual Company, HGI and all affiliates from engaging in certain activities and taking certain actions without Nationwide’s approval, including among others, the payment of shareholder dividends by HGI.

An insurance company’s statutory combined ratio is a standard measure of underwriting profitability. This ratio is the sum of (1) the ratio of incurred losses and loss settlement expenses to net earned premium; (2) the ratio of expenses incurred for commissions, premium taxes, administrative and other underwriting expenses to net written premium; and (3) the ratio of dividends to policyholders to net earned premium. The combined ratio does not reflect investment income, federal income taxes or other non-operating income or expense. A ratio of less than 100 percent generally indicates underwriting profitability. Harleysville Group’s statutory combined ratio for the three months ended March 31, 2012 was 105.0% compared to 112.3% for the three months ended March 31, 2011, which includes 4.5% due to the impact of the statutory treatment of the ceding commission received on the unearned premiums ceded to the Mutual Company on January 1, 2011. Excluding the impact of the pool transfer, the statutory combined ratio was 107.8% for the three months ended March 31, 2011. The 2012 period includes 0.8 points of catastrophe losses. The 2011 period includes unusually severe winter weather resulting in losses not meeting the catastrophe definition, as well as 4.5 points of catastrophe losses.

In the first quarter of 2012, Harleysville Group had income before income taxes of $3.7 million, compared to $25.5 million in the first quarter of 2011. The decrease in income before income taxes of $21.8 million for the three months ended March 31, 2012, as compared to the same period in 2011, was primarily due to lesser investment income and realized gains in the 2012 period compared to the 2011 period. The increase in other underwriting expenses in the first quarter of 2012 is primarily due to the adoption of new accounting guidance (ASU 2010-26) related to the capitalization of acquisition costs.

The income tax expense for the three month periods ended March 31, 2012 and 2011 includes a tax benefit of $2.8 million and $3.4 million, respectively, related to tax-exempt investment income.

Following a hearing held on April 19-20, 2012, on April 23, 2012 the Court issued an Order which (1) denied the plaintiffs’ motion for preliminary injunction because plaintiffs failed to show they would be irreparably harmed if the Parent Merger was consummated since any harm the policyholders may suffer can be recompensed with money damages and since plaintiffs failed to show that the proxy statement submitted to members/policyholders contained false statements of material fact or that material facts were omitted from the proxy statement; (2) determined, at such time, not to impose a constructive trust over the merger consideration to be paid to directors and officers of the Mutual Company who are defendants under the CCADC; (3) granted, in part, the defendants’ motion to dismiss for lack of irreparable harm with respect to (a) the plaintiffs’ request to enjoin the Mutual Company policyholder vote; (b) to require the Mutual Company to issue a new proxy statement; and (c) to strike certain provisions from the Merger Agreement; and (4) found the Court lacked jurisdiction to impose a constructive trust over the merger consideration to be paid to the stockholders of the Company who are not parties to the CCADC.

The business, results of operations and financial condition, and therefore the value of Harleysville Group’s securities, are subject to a number of risks. Some of those risks are set forth in the Company’s annual report on Form 10-K for fiscal year 2011, filed with the SEC on March 14, 2012. There has been no material change from the risk factors as previously disclosed in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2011.